National Insurance Contributions (NICs) are a significant part of your tax burden — often adding 8% on top of income tax. Here’s how NICs work and what you’ll pay.
Table of Contents
What Is National Insurance?
National Insurance is a UK tax on earnings and self-employment profits. It funds:
- State Pension — you need 35 qualifying years for the full pension
- Jobseeker’s Allowance
- Employment and Support Allowance
- Maternity Allowance
- Bereavement Support Payment
NICs are separate from income tax and have their own rates and thresholds.
Employee NIC Rates (Class 1) — 2026/27
| Earnings Band | Rate |
|---|---|
| Below £12,570 (Primary Threshold) | 0% |
| £12,571–£50,270 (Upper Earnings Limit) | 8% |
| Over £50,270 | 2% |
Employee NIC Examples
| Gross Salary | Annual NIC | Monthly NIC | Effective NIC Rate |
|---|---|---|---|
| £20,000 | £594 | £50 | 3.0% |
| £25,000 | £994 | £83 | 4.0% |
| £30,000 | £1,394 | £116 | 4.6% |
| £40,000 | £2,194 | £183 | 5.5% |
| £50,000 | £2,994 | £250 | 6.0% |
| £60,000 | £3,194 | £266 | 5.3% |
| £80,000 | £3,594 | £300 | 4.5% |
| £100,000 | £3,994 | £333 | 4.0% |
NIC as a percentage of income actually decreases as you earn more due to the flat 2% rate above the Upper Earnings Limit.
Employer NIC Rates (Class 1) — 2026/27
| Earnings Band | Rate |
|---|---|
| Below £9,100 (Secondary Threshold) | 0% |
| Over £9,100 | 13.8% |
Employer NICs are a significant “hidden” employment cost:
| Employee Salary | Employer NIC | Total Cost to Employer |
|---|---|---|
| £25,000 | £2,194 | £27,194 |
| £35,000 | £3,574 | £38,574 |
| £50,000 | £5,644 | £55,644 |
| £75,000 | £9,094 | £84,094 |
| £100,000 | £12,544 | £112,544 |
Self-Employed NIC Rates (Classes 2 & 4) — 2026/27
Class 2 NICs
| Threshold | Rate |
|---|---|
| Profits over £12,570 | £3.45/week (£179.40/year) |
Class 2 NICs are relatively small but important — they count toward your qualifying years for State Pension.
Class 4 NICs
| Profit Band | Rate |
|---|---|
| £12,571–£50,270 | 6% |
| Over £50,270 | 2% |
Self-Employed Examples
| Annual Profit | Class 2 | Class 4 | Total NICs |
|---|---|---|---|
| £20,000 | £179 | £446 | £625 |
| £30,000 | £179 | £1,046 | £1,225 |
| £50,000 | £179 | £2,246 | £2,425 |
| £75,000 | £179 | £2,746 | £2,925 |
| £100,000 | £179 | £3,246 | £3,425 |
Self-employed individuals pay lower NICs than employees — 6% vs. 8% on the main band — but don’t receive employer contributions to their pension.
Combined Tax and NIC Burden
Your true marginal rate includes both income tax and NICs:
| Income Band (Employee) | Income Tax | Employee NIC | Combined | After £100K PA trap |
|---|---|---|---|---|
| £0–£12,570 | 0% | 0% | 0% | |
| £12,571–£50,270 | 20% | 8% | 28% | |
| £50,271–£100,000 | 40% | 2% | 42% | |
| £100,001–£125,140 | 40%+20%* | 2% | 62% | PA withdrawal |
| Over £125,140 | 45% | 2% | 47% |
*The effective 60% income tax rate comes from losing £1 of Personal Allowance for every £2 earned.
National Insurance and Your State Pension
NICs build your State Pension entitlement:
| Qualifying Years | Pension Amount (2026/27) |
|---|---|
| 35 years (full) | £11,502/year (£221.20/week) |
| 30 years | £9,858/year |
| 20 years | £6,572/year |
| 10 years (minimum) | £3,286/year |
| Under 10 years | £0 (not eligible) |
How to Build Qualifying Years
| Activity | Counts Toward NI Record? |
|---|---|
| Employed (earning over £12,570) | Yes (Class 1 NICs) |
| Self-employed (profits over £12,570) | Yes (Class 2 NICs) |
| Claiming Child Benefit | Yes (NI credits) |
| Caring for someone 20+ hours/week | Yes (Carer’s Credit) |
| Receiving Jobseeker’s Allowance | Yes (NI credits) |
| Voluntary contributions (Class 3) | Yes (£17.45/week) |
Check your NI record at gov.uk to see how many qualifying years you have and whether you should fill gaps.
NIC Thresholds History
| Tax Year | Primary Threshold (Employee) | Main Rate |
|---|---|---|
| 2026/27 | £12,570 | 8% |
| 2025/26 | £12,570 | 8% |
| 2024/25 | £12,570 | 8% |
| 2023/24 | £12,570 | 12% |
| 2022/23 | £12,570 | 13.25% |
| 2021/22 | £9,568 | 12% |
NICs have been cut significantly — from 13.25% to 8% — since 2022, providing meaningful take-home pay increases.
Strategies to Reduce NICs
| Strategy | How It Works | Saving |
|---|---|---|
| Salary sacrifice for pension | Employer contributes to pension instead of paying salary — saves both employee and employer NICs | 8% (employee) + 13.8% (employer) |
| Salary sacrifice for childcare | Exchange salary for tax-free childcare vouchers | 8% employee NIC |
| Salary sacrifice for cycle-to-work | Reduce salary for bike purchase | 8% employee NIC |
| Directors: optimal salary + dividends | Pay £12,570 salary, rest as dividends | Dividends don’t attract NICs |
| Voluntary NI contributions | Fill gaps for minimal cost to boost State Pension | £17.45/week per missing year |
Pension salary sacrifice is the most impactful — on a £10,000 sacrifice, you save £800 in employee NICs and your employer saves £1,380.
Key Takeaways
- Employees pay 8% on earnings between £12,571 and £50,270, then 2% above that
- Self-employed pay 6% on the main band — lower than employees
- The combined tax + NIC rate is 28% for basic rate earners and peaks at 62% in the £100K–£125K band
- You need 35 qualifying years for the full State Pension (£11,502/year)
- Salary sacrifice is the most effective NIC-reduction strategy — saving both employee and employer NICs
- Check your NI record to identify gaps that could reduce your State Pension
